Great companies are strongly differentiated and, typically, well trusted. Their valuations are higher because the market believes brand strength and clear differentiation will deliver higher future earnings. Their reputation is part of their competitive advantage.
Building reputation through effective communication that better differentiates a company is a strategic investment in a business asset. Communication that strengthens reputation is far more valuable than is recognised.
It is an enabler that allows companies to expand faster, use technologies differently or gain access to resources - people, capital or assets - previously beyond their reach.
Conversely, a weak reputation increases political and regulatory risk, raises the cost of capital and drives operating expense. However, communicators lack belief that they can deliver a tangible reputation dividend. Activities are seen as a cost rather than an investment. This sets up the wrong decision-making dynamic. The emphasis is on managing budgets rather than investing for maximum shareholder return.
Investment should reflect the value of differentiation, but often there isn't enough time and money devoted to strategic thinking to create clarity on positioning and to define a coherent, complete corporate narrative.
Often narrative lacks insight into operating intangibles. It is not deep enough or delivered with enough creative flair or campaigning energy to make differentiation stick. Reputation management has to be built on the foundations of strong strategy, a compelling narrative and powerful, creative storytelling.
The reality is something different. Corporate communications is dominated by three things: explaining strategy, structures and restructures; reporting results against a matrix of targets (including social responsibility); and protecting reputation by managing away risks and threats. All of that is vital - it protects, it explains topline direction of travel and it provides evidence of progress. But how often does it cement differentiation?
Many argue that reputation management is just too woolly, and lacks supporting empirical evidence. I agree that we must crack the analytics but we also need to look at it differently.
Research shows that companies that open up, telling a rich, deep story, are valued more highly than those that don't. The market rewards systematic, deeper disclosure of operational detail. Oxford Metrica analysis has shown that good communication increases share price by about eight per cent a year.
There's a real incentive to reveal the genetic code that governs how your company delivers on a strategy and, ultimately, where the financial results come from. That's a great opportunity for reputation managers, but it means taking a more balanced, robust and creative approach.
It also means winning arguments with finance directors and investor relations folk. They'll say: 'Investors aren't interested in soft stuff; focus on the management delivering on targets.' Life is not that simple. The 'soft stuff' has a profound impact on revenue growth, efficiency and profits.
Reputation management and corporate communications should, in large part, be about making your narrative stick with those who matter. Let the world see more deeply into your company and help stakeholders understand the genetic code that makes your company different.
It is not easy, but failing to deliver a whole company narrative - one that embraces culture and talent development, brand and category management, the process of innovation, customer and supply chain relationships and so on - leaves outsiders to see in through a narrow window of metrics. It leaves companies undervalued and creates an unforgiving and brittle relationship between manager and shareholder or stakeholder.
We can add hundreds of millions to the value of companies simply by making them better understood. Woolly? I'd call it a good return on investment.